TURKMENISTAN: BURREN ENERGY MANAGER DISCUSSES THE

UNCLAS SECTION 01 OF 02 ASHGABAT 001074 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB STATE PLEASE PASS TO USTDA DAN STEIN ENERGY FOR EKIMOFF COMMERCE FOR HUEPER E.O. 12958: N/A TAGS: PGOV PREL EPET TX SUBJECT: TURKMENISTAN: BURREN ENERGY MANAGER DISCUSSES THE PROBLEMS OF SUCCESS ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: Over dinner, the Amcit operations manager for Burren Energy talked about many of the challenges that his company -- and most foreign firms doing business in Turkmenistan -- are facing, including problems with the dual currency exchange rate, shortages of trained personnel, and "hire Turkmen" pressure from often-conservative local officials. Burren, which is now producing almost 30,000 barrels of oil per day, is seeking to make a transition in its operations from start-up expediency to longer-term growth. Among its most pressing decisions is the need to figure out what to do with the substantial amounts of natural gas it is hitting in its oil production. While Burren could increase gas production, the lack of existing pipeline makes the gas more of a liability than a source of revenue, at least for now. END SUMMARY. 30,000 BARRELS OF OIL PER DAY ¶3. (SBU) Over an October 1 dinner in Balkanabat, the capital of Turkmenistan's oil-rich Balkan Province, the American-citizen Operations Manager for Burren Energy told emboff that his company is working on making the transition from being a small, start-up firm to becoming a firm of substance. The UK-registered Burren is working oilfields previously worked under a partnership between Mobil and Monument in the only land-based foreign production sharing agreement in western Turkmenistan, and has done very well. It has around 1000 employees, and is now producing approximately 30,000 barrels per day, amid still-increasing production. GROWTH MEANS DOING THE RIGHT THING ¶4. (SBU) This growth, however, has brought some new challenges. Most importantly, Burren is getting more attention from government authorities, meaning that it must be more careful to toe the line and "do the right thing." Balkanabat City authorities had only recently returned a curfew of 9:00 pm -- imposed on the company because its employees had been involved in a little too much carousing around town -- back to 11:00 pm. More significantly, however, the company is now being hit hard by Turkmenistan's dual currency exchange rate every time it wants to import equipment. The days are over, the Operations Manager said, when the company could give some money as petty cash to an employee and ask that person to purchase needed equipment (at the unofficial exchange rate of 23,800 manat to the dollar). Now, it must go through official channels -- and purchase the equipment at the official rate of 5,000 manat to the dollar. BURREN'S GAS QUANDARY: WHAT TO DO WITH THE EXCESS? ¶5. (SBU) The Operations Manager said that Burren is hitting substantial amounts of natural gas as it extracts oil. While he declined to mention specific figures, he stated that his company is currently adding some of the gas to a government gas pipeline that runs through Burren's land -- essentially, giving the gas free-of-charge to the Government of Turkmenistan -- and is flaring the remainder. However, it has been talking with Petronas and Dragon Oil, the other two major foreign operators in the area, and is eager to exploit the gas in some sort of joint arrangement. Burren has made a proposal to the government to drill an additional 40 wells. The main obstacle to following up is the lack of an export pipeline, and, he said, while Burren would be willing to increase production, it does not want to get involved in paying to lay miles of pipeline. (NOTE: To make some money ASHGABAT 00001074 002.2 OF 002 off the gas Burren is hitting, Petronas has told us it has agreed to rehabilitate the entire Turkmenistan portion of the CAC-III/Caspian littoral pipeline and is building a gas treatment plant -- and may build a petrochemical plant as well (septel). END NOTE.) The Operations Manager asked about the prospects for a Trans-Caspian pipeline, and stated that Burren almost certainly would be interested in using such a pipeline. SHORTAGES OF TRAINED LOCAL PERSONNEL... ¶6. (SBU) Like representatives of other hydrocarbon firms, this Burren official said that one of the biggest problems for companies wanting to do business in Turkmenistan is the difficulty of finding skilled people. Looking at its bottom line, Burren would be eager to support the government's call to employ mostly local personnel, who are less expensive and are used to living in Turkmenistan's cultural and political milieu. However, Turkmenistan simply does not have enough workers capable of working in hydrocarbon extraction and related fields. Seeking to address some of its most immediate shortages, he said, Burren is sending a limited number of individuals to the University of Reading, but added that "this is really inefficient." What Turkmenistan really needs is a good program teaching oil and gas engineering within Turkmenistan. AMID GOVERNMENT PRESSURE FOR "TURKMEN ONLY" POLICY ¶7. (SBU) In discussing the company's relations with its employees, which the Burren official claimed were basically good, he noted that the government in recent months has been placing substantial pressure on Burren to adhere to an "ethnic Turkmen only" hiring policy and to fire any ethnic minority employees. This pressure came only from officials, however, and overall relations between ethnic Turkmen workers and their minority colleagues were generally excellent and without ethnic bias. ¶8. (SBU) COMMENT: While still a third-tier hydrocarbon company, Burren is one of the few foreign firms that has really thrived in Turkmenistan. In recent months, it has changed over several key personnel at senior management levels, and the newcomers seem to be interested in pursuing more structured operations and growth. With better management a new focus, future growth seems to hang on its ability to turn its natural gas from a liability into a money earner. Such an objective is only possible, however, if it can identify new export options. END COMMENT. HOAGLAND